Pay taxes on church raffle prize winnings

Dear Tax Talk,
I won $3,000 in a church raffle. I gave $1,000 from the prize money as a donation to the church, and I deposited the balance of $2,000 in my bank account. Are the winnings considered income that requires me to pay tax? Also, since I took $1,000 of the $3,000 and donated it to the church, am I only liable for the $2,000 that I actually put in my bank account? Must I get a 1099-R Form from the church to file with my 1040 tax forms when I file my income tax forms for 2013?
— Charlotte

Dear Charlotte,
Congratulations; it is always exciting to win! Raffles are often used by many churches and schools as a fundraising source, and I am sure the church was very grateful for your generosity in sharing the winnings. According to the IRS, “in general, a raffle is considered a form of lottery. As such, a raffle generally refers to a method for the distribution of prizes among persons who have paid for a chance to win such prizes, usually determined by the numbers, or symbols, on tickets drawn.”

You are going to need to report the $3,000 in winnings as income on line 21 of your Form 1040, which is for “other income.” If the church is a qualified tax-exempt organization and you itemize your deductions, you can claim the charitable contribution of $1,000 made to the church. Additionally, since gambling losses are deductible to the extent of gambling winnings as a miscellaneous itemized deduction on Schedule A, line 28, you can deduct the cost of the ticket(s) along with any other lottery losses — again, that’s if you itemize your deductions on Schedule A.

You will not be receiving a Form 1099-R from the church for your winnings, as that is not the required form. Instead, you may be issued Form W-2G, which is used to report certain gambling winnings. Generally, an exempt organization such as a church is required to report raffle prizes on Form W-2G if the prize amount is more than $600 and at least 300 times the cost of the raffle ticket.

Since the church is a tax-exempt organization and your gift is more than $250, you will need to obtain written acknowledgment indicating the amount of your cash contribution. The acknowledgment must also say whether any goods and services were provided by the organization in exchange for the gift, as well as give a description and a good faith estimate of the values of those goods and services.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

Bankrate’s content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate’s Terms of Use.